Credit Score is a three digit number but is sums up a lot of factors and reveals a lot of information. It offers a peep onto your credit history, your financial health and of course how responsible you are towards your debt. Five major factors go into making or breaking the credit rating; they are repayment history, credit utilization, loan tenure, credit mix and the inquiries made about your CIR. These factors ultimately decide what that three digit number will be. So what are the three lifelines for a good CIBIL rating?
- Timely Payments:
This is one thing which one cannot ignore if they want to have a blemish free Credit Information Report (CIR) or want to improve CIBIL score. This factor impacts the calculation of the rating the maximum. So the biggest favor one can do themselves is to pay on time, always! Paying on time cannot be a one of event, it is something that needs to be inculcated as a habit and discipline; one cannot do it for a few months and then go lax on it. Repayment history contributes maximum to the rating calculation and each missed or delayed payment is reported to the credit agencies. So be it the monthly credit card payment or the loan EMI ensure you are nor late in paying them.
- A Cautious Approach:
We all love new shiny things and that little plastic thing (your credit card/s) may look like a genie that we have in our hands. However if you are not cautious then that genie can quickly turn into a devil. Here I am not talking about only overspending which of course can cause problems but also about a high credit utilization ratio. While spending too much on your card can put you in a fix at the end of the month, a high credit utilization ratio can also harm your credit score. Keeping your credit utilization ratio below 40% will ensure that your CIBIL score does not take a hit. Credit utilization is the ratio of the average monthly spending on the credit card/s vis-a-vie the overall sanctioned limit for the card/s. Apart from that another area in which you need to exercise caution is; applying for a loan. Each time you apply for a loan the prospective lender seeks your CIR; this is termed as a hard inquiry and is reported to the credit rating agencies. Hard inquiries also lower the score. So apply for a loan only when necessary and after doing sufficient research about the lenders loan process so that your application is not rejected which will make you apply for a loan again and generate another hard inquiry.
- Stay Faithful to Old Debt:
If one has surplus funds you may think about repaying or that SBI Home Loan or that education loan from Bank of Baroda. However think before you do so! A long well serviced loan is good for your credit report. Deeper the credit history the better it is; so though repaying may sound like a good option but consider its impact on the rating. Similarly if for any reason you need to surrender one credit card if you have multiple cards then consider cancelling the newer one. Of course this needs to be done after considering all the advantages and disadvantages or you could keep both cards and use the older one occasionally and remember to pay on time. This way it will still reflect in the CIR.
The above are three things that can help you stay in good credit health; these are not the only ones but they are definitely on the top priority list. So follow the above and you will never have to worry about your Credit Information Report.